Hyperscaler expansion to boost US power generation capacity, but concentration risks persist: Report
New Delhi, November 8
Rising electricity demand from expanding hyperscale data centres is expected to drive US power generation capacity growth through 2028, however, dependence on a concentrated customer base poses risks, as per a report by S&P Global.
The report highlighted that the rapid expansion of hyperscale data centres is driving electricity demand in the US after decades of largely stagnant consumption.
Citing projections by the US Energy Information Administration (EIA), it noted that electricity generation capacity is expected to grow at a compound annual growth rate exceeding 5 per cent through 2028.
As per S&P Global, the rising demand presents opportunities for US utilities, as higher electricity consumption could help offset delays in recovering costs through regulated rates, while supporting financial performance and credit quality.
In response to growing demand from data centres, utilities have been working with regulators to introduce special tariffs for large electricity consumers. These publicly available tariffs provide greater transparency, although their provisions may differ from individual agreements with hyperscale operators.
"Still, reliance on a single industry and a concentrated customer base introduces considerable risk," S&P Global said.
The report noted that utility tariffs specify the rates, fees and charges applicable to different customer categories, with large-load tariffs generally setting eligibility requirements for major electricity consumers.
However, individual contracts with hyperscalers may include additional provisions to protect utilities against financial risks beyond those specified in the tariffs.
"As a result, it is challenging to fully evaluate a utility's risk exposure to hyperscalers based solely on tariff provisions," it noted.
Nevertheless, the report highlighted that publicly available tariffs provide an important starting point for assessing and comparing utilities' exposure to large data centre customers, even though they do not capture the full extent of potential credit risks.
According to S&P Global, large-load tariffs generally involve long-term agreements between utilities and data centre operators, typically extending for at least 12 years and potentially up to 20 years.
These agreements also include minimum payment requirements that, on average, cover approximately 85 per cent of fixed costs, alongside termination fees and collateral provisions designed to protect utilities against financial losses.
"Such provisions are often triggered even if the rating on a hyperscaler falls below 'A-'," it said.
While the terms vary across utilities, such provisions generally help mitigate risks associated with hyperscale customers by limiting financial exposure and supporting credit quality.
"Additionally, many utilities are still securing regulatory approval for their large-load tariffs," the report highlighted.
— ANI
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